Downturn looms as UAW talks start

DETROIT — The UAW has long eyed this year as a chance for workers who sacrificed to keep the Detroit 3 afloat a decade ago to be rewarded with a bigger piece of the huge profits rolling into their employers' coffers.

Instead, the union finds the automakers back to belt tightening and job cutting.

Despite an economy that's become healthier since the previous few rounds of contract talks, the scene is set for this year's negotiations to be even tougher as both sides stubbornly dig in their heels.

Union leaders are likely to argue that record profits over the past four years — along with lucrative executive bonuses — should translate to bigger raises, better health care and more job security for members, many of whom still seethe over concessions made during the Great Recession.

Give and take

Major changes in recent UAW contracts with the Detroit 3

2007

Retiree health care shifted to VEBA

2-tier wage schedule created, eliminating pensions for new hires

Wage increases replaced by lump-sum bonuses

2009 (reopening of 2007 contract)

Jobs Bank eliminated

Right to strike forfeited through 2015

Health coverage cut back

2011

2nd-tier pay increased

Profit-sharing formula simplified

Job-creation investments and insourcing of work from Mexico promised

2015

Wages increased

Newly hired workers given path to full wages

But the automakers, determined not to fall back into old habits, are acting as if the current boom is already in the rearview mirror. Ford Motor Co., General Motors and Fiat Chrysler Automobiles are preparing for a downturn as they try to narrow a labor cost gap that sees them pay up to $13 more an hour than their foreign counterparts.

The challenges don't stop at the bargaining table. Even if the two sides find compromise in forging a new pact, they likely face one of the most contentious paths to ratification in recent memory.

Trust in union leadership has been eroded by an ongoing corruption scandal that has resulted in eight convictions and landed former negotiators in prison for stealing money meant for the rank and file. The union has also gotten younger and less experienced with the collective bargaining process. Many members weren't around during the lean times and may be more likely to strike in search of a better deal. More than half of FCA's U.S. hourly workers started after 2011.

Add to that wild cards that include a president whose impulsive tweets and demands for U.S. investment could upend the delicate talks.

A source involved in the negotiations said reaching agreements will be deceptively hard, noting that even early, informal talks have been unusually strenuous. Bargaining formally begins Monday, July 15, with a handshake ceremony at Ford, followed by similar events Tuesday at General Motors and FCA. The talks will intensify after Labor Day and likely stretch into the fall. The current contracts, signed in 2015, expire in mid-September.

"It's going to be a difficult challenge," Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich., told Automotive News.

"While things are still good, you have to prepare for the storm ahead. But a huge portion of the work force that will be voting on these contracts were hired after the bankruptcies and the recession. They don't know what down looks like."

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The union's key rallying cry during the last round of negotiations in 2015 was "close the gap," in reference to the two-tiered wage structure that paid new hires considerably less than legacy workers, a concession agreed upon in 2007.

The union achieved that goal, with all three automakers agreeing to phase out the tiered pay with an eight-year "grow-in" period that would give all workers a path to top wages.

Now, the union is trying to close a different kind of gap.

During its bargaining convention in March in Detroit, among the UAW's stated priorities was to "reduce the time it takes for new workers to progress to top wage rates." The union said it wants to take "one or more years" off the grow-in period, raise the starting wage rate or increase the percentage that pay goes up over that period.

The UAW will face resistance from the automakers, who will argue that the eight-year period gives them needed flexibility to keep costs down while eventually giving workers what they want.

UAW members' wish list may also include more protections in terms of raises and bonuses. Although profit-sharing checks over the course of the last contract have totaled nearly $5 billion, including $1.19 billion paid out this spring, those figures are tied to the fluctuating fortunes of the automakers.

With profits expected to fall during the next four years, the union could look to change the profit-sharing formula or drop the practice altogether in favor of wage gains that wouldn't change year to year, experts have said.

"Profit-sharing checks have been very generous, but that's contingent compensation," Dziczek said. "You'll have members that say, 'Hey, the profit train is ending. Why isn't it rolled into my base wage? Why isn't it something I can count on versus being a slot machine?' "

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The union also will be fighting to protect manufacturing jobs now and in the future. That's most poignantly felt at GM, which over the course of two contracts has moved from having the most UAW employees to the fewest.

Production shifts

U.S. production and hourly employment for the Detroit 3 rose significantly after the Great Recession, but GM and FCA have shifted more work to Mexico under their current UAW contracts. Charts show annual light-vehicle production.

The union believes 35,000 or more of its members' jobs are at risk because of electric vehicles, UAW Research Director Jennifer Kelly said at the March convention. EVs will require fewer labor hours on assembly lines, given that they don't need to be fitted with components such as multispeed transmissions or exhaust and fuel systems.Leaders also want to ensure the UAW would be involved in building future battery packs and cells, which to date has largely happened overseas or in nonunion factories.

Even if such work is added at union plants, special deals in place now allow GM and others to use temporary or lower-wage workers.

This year's talks will focus on contentious topics including health care, temporary workers and plant investment, issues the automakers view as key to closing the wage gap between themselves and the so-called transplant automakers, such as Toyota, Hyundai and BMW.

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But even if the union can bargain for protections and gains for its members in those areas, the lingering corruption scandal could cast a shadow over how rank and file view the process.

Former FCA labor relations chief Alphons Iacobelli is serving a five-and-a-half-year prison sentence for his role in the wide-ranging scandal, which prosecutors contend involved paying union officials via fake charities and other methods, using funds from the UAW-Chrysler National Training Center, to keep them "fat, dumb and happy."

Norwood Jewell, a former UAW vice president who led negotiations with FCA in 2015, has pleaded guilty to taking part in the conspiracy and is to be sentenced in August.

Jewell was charged in March with conspiracy to violate labor laws by receiving more than $40,000 worth of travel, lodging and meals from people acting on behalf of FCA from at least 2014 to 2016.

Ratifying a deal will be "extremely difficult," Art Wheaton, a labor expert at Cornell University, told Automotive News. "The level of trust, specifically at FCA, is especially low."